An insider deal with city funds in Mount Carroll?

Project helps downtown, boosters say; others question loan

MOUNT CARROLL – The smell of coffee wafts from the Kraft Building these days – one of the signs, some say, of a downtown on the move.

Open since 2011, Brick Street Coffee takes up the renovated first floor. The renovation came about with the help of state and federal funds – and a loan from the city.

That loan is under new scrutiny. Some say it resulted from too-cozy relationships.

In 2009, the City Council approved a $90,000 loan for the Kraft Building’s renovation; it later increased to $106,000. That money came from the city’s $180,000 revolving loan fund, which the state provided years ago.

The loan went to the Mount Carroll Community Development Corp., a group that aims to boost the town’s economy, particularly the downtown.

The group finished the first-floor renovation in December 2010.

Lou Schau is at the center of the deal. He is the president of the CDC, the owner of Brick Street Coffee, and a member of the city’s revolving loan committee, which makes recommendations on loans.

The city’s attorney, Ron Coplan of Morrison, also represents the CDC. He drafted the promissory note between the city and the group, which even he acknowledged could be seen as a conflict of interest. He also belongs to the revolving loan committee.

Now, two aldermen, Doris Bork and Bob Sisler, and a former one, Nina Cooper, are questioning the deal.

‘Energy felt good in Mount Carroll’

Seven years ago, Schau, a retired engineer, moved to Mount Carroll from the Chicago suburb of Geneva. His wife had just died, and he was looking for a town with a slower pace – somewhere between the suburbs and Iowa.

Enter Mount Carroll, a hilly Carroll County town, population 1,693. Schau was impressed.

“The energy felt good in Mount Carroll,” he said.

Schau became involved in the CDC and took its reins. The group took ownership of the burned-out Kraft Building, 320 N. Main St., in 2006 and sought to renovate it. He said he didn’t originally intend to open a business in the building, but he did so to make the project a success.

Having just one business on the first floor is a detour from the original plan. According to the city’s 4-year capital improvements plan in 2009, officials foresaw five or six small businesses on the first floor along with a welcome center.

The welcome center is in an entryway, with visitor brochures available. But Brick Street is the only business.

Under the state’s requirements, a loan recipient must create or keep a job for every $15,000 lent.

For the 124-year-old Kraft Building project, that would equal seven jobs. CDC is short of that.

After 2 years, the project has created just one full-time employee, Schau himself. The coffee shop has five part-time workers. Schau wasn’t sure how part-time positions should be counted, but such positions often are measured as half-time jobs. By that accounting, the project created three and a half jobs.

Schau also said the coffee shop consists of 36 vendors, who have things for sale such as chocolate chip cookies and greeting cards. That’s part of the business incubator the CDC promised the city in return for the loan, he said. The vendors don’t work on site; rather, the coffee shop handles the transactions for them.

Schau said those vendors count as two full-time jobs, but he didn’t say how he reached that conclusion.

If Schau’s version is correct, the project has created five and a half jobs – still less than the seven required.

In September, the city reported to the state that the CDC project had resulted in four jobs created. But City Clerk Julie Cuckler said that number was wrong.

“I was guessing,” she said, adding that she counted at least that many working at the coffee shop when she went there.

The state asked that the city provide documentation on the jobs created with its next report, which is due this month, Cuckler said.

The state Department of Commerce and Economic Opportunity provides the loan funds to towns, but agency officials declined to answer questions about the CDC’s accounting of the jobs.

According to the agency’s website, the revolving loan program allows no speculative projects. Jobs must be created or retained “in a timely manner as a result of [a revolving loan fund] investment in a specific, identifiable project,” the site says.

‘A little casual at times’

The CDC had another problem. In the state’s eyes, it didn’t exist for more than a year. The group involuntarily dissolved July 8, 2011, according to the Illinois secretary of state’s website.

That means the CDC failed to file its annual report last year, even though the secretary of state’s office sends reminder notices to businesses and nonprofit groups. On July 7, 2011 – one day before the dissolution – Brick Street Group, Schau’s business, formed as a limited liability company, according to the secretary of state.

Attorney Coplan, who is listed as the CDC’s agent, said he recently turned in the paperwork to the secretary of state. As of Nov. 29, the secretary of state again recognized the group.

Since 2008, the CDC also has not filed the required tax form for nonprofit groups, according to Guidestar, a website that closely tracks such documents.

“There is nothing amiss,” Coplan said. “If it’s been a little casual at times; it’s reflective of a small town.”

Then there’s the issue of Coplan’s role.

Coplan, also Sterling’s city attorney, said he doesn’t bill the CDC for his services, although he said that doesn’t make a difference.

While he said his role could be seen as a conflict of interest, he said he would step aside if the city and the CDC developed an adversarial relationship.

“Conflicts can be waived by parties,” Coplan said. “It’s well known by the mayor and, I assume, the council that I work for CDC. They’re fine with that. At the present time, there are some people who would like to create an issue between CDC and the city.”

Maryam Judar, an attorney with the Citizens Advocacy Center, an Elmhurst-based watchdog group, said an attorney shouldn’t represent both sides of an agreement.

“It’s like playing chess with yourself,” she said. “You know the person’s next move because it’s you.”

‘Way of spending city’s largess’

The CDC never will have to repay the loan. The money for repayment is coming from the city’s tax increment financing, or TIF, fund. The Kraft Building is in the downtown TIF district.

A TIF district is an economic development tool used to raise money for infrastructure and redevelopment projects in blighted areas designed to attract new businesses. When a TIF district is created, a base value of the property within its borders is calculated, and for up to 23 years – sometimes extended to 35 – local taxing bodies such as schools collect taxes only at that base level.

In Mount Carroll, the city gets everything collected above the base. Under the agreement with CDC, the city is supposed to make payments over 15 years from the TIF fund to the revolving loan fund – at a 2 percent interest rate.

Cooper, the former alderwoman, said the loan agreement was a “raw deal.”

Cooper said TIF money is not supposed to be used for speculative projects.

“There was no going concern there,” she said. “They had to buy the building. It was burned out. I don’t know what you would call that other than speculative.”

She and Aldermen Sisler and Bork said they were worried because the CDC had dissolved.

Schau called that a “paperwork snafu.” The project was serious, he said, noting that it received a $180,000 state grant and $99,000 from the U.S. Department of Agriculture’s Rural Development.

‘It tears citizens apart’

The Kraft project is part of a downtown turnaround for the better, its boosters say.

“We’re seeing something in every building downtown,” City Clerk Cuckler said. “Our sales tax revenue is better than what I thought it would be after [the recession]. Come here on a Friday, Saturday or Sunday night and see if you can find a parking spot.”

Schau said the CDC is made up of volunteers who have the best interests of Mount Carroll at heart. And he said the members of the revolving loan committee who also belong to the CDC abstained from making recommendations on the group’s Kraft project.

“To cast doubt on this, to negate the labor of those who worked hard, that’s hurt more than anything,” Schau said. “It tears citizens apart.”